Mining News

Rare Earths: China still holding 90% of Global Market

Most of us couldn’t name a rare earth element and yet they are an integral part of our everyday lives. Smartphones, laptops and LCD screens all contain significant quantities of at least one of the 17 elements and our dependence on these materials is only going to grow alongside the high tech industry. There is an opportunity for investors to gain exposure to the rare earth market and benefit from its predicted growth, but for the moment, China is holding all the cards.

Of the 99 million tonnes of discovered rare earths, 36 million, or approximately 30%, are in China. With this abundance and the availability of cheap labor, China produces rare earths at such a significant discount to its competitors that it holds almost 90% of the market. A near-monopoly such as this poses inherent risks to consumers and the potential to spark a global trade dispute.

The control China has over this sector was shown in 2010 when they decided to decrease its export quota on the 17 elements by 40%. The reaction forced prices of rare earths to spike – some of which by tenfold. The Obama administration saw this as a “wake-up call” to voice their concerns over the subject, supported by the European Union and Japan. Since then the World Trade Organization has ruled that China’s restrictions were discriminatory and told to scrap the quotas and export tariffs, but other avenues still exist for the Chinese to assert their dominance.

A recent large-scale rare earth discovery in Peru is an opportunity for non-Chinese governments and corporations to weaken the current strangle-hold on this industry. US-based RioSol and its Peruvian mining arm Compañia Minera Rio Sol, announced last week that its site is home to the highest rare earth ranges in South America. A geological report confirmed that the 10km Capacscaya and adjacent claims contain significant quantities of high range Neodymium, Scandium, Lathanum, Cerium, Europium and Yttrium, as well as their related oxides.

The successful development of this site will encourage international competition and geographic diversity in this increasingly important market, and the Peruvian government should expect significant attention towards how they handle this. In last year’s Fraser Institute Mining Survey, Peru was criticized for the lack of continuity in their decision making abilities. Executives working in the area said that agreements were not binding and subject to change at each local election and the many community meetings.

Speaking at the Vancouver Resource Investment Conference last week, Jon Hykawy, president of Stormcrow Capital, said the next 5 to 10 years was a very formative time for the rare earth market. “(It is) likely this year what we’re in for is stabilization in prices and a slow increase in those prices moving forward.” Although he expressed concern regarding China’s majority position, he was confident that a string of new discoveries would become viable development opportunities.

He suggested that strategic investors would be attracted to projects that are long term, cost competitive and in a stable political environment. It is hoped that local authorities, such as the Peruvian government, will help provide this setting to allow projects to flourish and take advantage of the global push to diversify the rare earth sector.